Rise in wheat prices hits Premier Foods

Robert Schofield, chief executive of Premier Foods, said: “The downside to 2007 has been the exceptional level of cost inflation that we and other food companies have faced.

“Whilst we have moved quickly to raise prices, the inevitable time lag between cost increases and raising prices reduced second half profitability and has caused temporary market imbalances as seen by our bread division.

“At December 2007, we had recovered some £190m of the £225m of annualised cost inflation that we saw in 2007 and we intend to recover the remaining costs during the first quarter of 2008.

“We anticipate that during this period the time lag on recovering 2007 cost inflation will reduce trading profit in the core Premier division by approximately £10m, partly offsetting the integration benefits,” he said.

He said Premier Foods had made “significant progress” on the integration of Campbell's and RHM and had delivered the £17m of cost synergies targeted for 2007 and remained on track to deliver the total £113m of annual cost synergies.

Premier Foods undertook a review of its bread business, which includes Hovis and Mother's Pride, in 2007 to combat the decline in market share and developed a strategy to rebuild volumes.

“We are currently implementing our new bread strategy supported by significant investment in capital equipment and recipe changes, which we anticipate will improve its competitiveness and rebuild our volumes over time to the levels of previous years.

“However, whilst we anticipate that trading profit will develop positively over the full year, with volumes during the first half running at lower levels than the same period in 2007, combined with the investment in recipe changes, we expect trading profit for the division will be lower during the first half of the year,” said Schofield.

Further prices rises for the company's bread brands have not been ruled out for the first half of 2008.

The acquisition of RHM and the UK and Irish operations of the Campbell's soup company boosted trading profits in 2007 by £129.4m to £280.2m.